Rubles-For-Gas Plan Explains Why Gazprombank Escaped Sanctions

(Bloomberg) -- Gazprombank JSC has so far been spared the harsher sanctions Russia has faced for its invasion of Ukraine. Putin's plan to get paid in rubles to keep gas flowing shows why.

Russian President Vladimir Putin signed an order instructing foreign buyers to open special accounts in state-controlled Gazprombank to allow foreign currency to be converted to rubles for settlements. That will be a requirement for companies wanting to receive Russian gas.

The move cements Gazprombank's central role in the delivery of a crucial energy source to nations including Germany and Italy, and shields Russia's third-largest lender from the harshest penalties even as the European Union and its allies seek to isolate the country's financial industry.

Seven Russian banks were banned from payments messaging system SWIFT earlier this month, but there were two notable absentees: Sberbank of Russia PJSC, and the 100 million retail clients it serves; and Gazprombank, and its mere 5 million.

Western allies agreed months ago, while planning how to respond to any Russian invasion of Ukraine, to spare Gazprombank from any sanctions as part of a decision to shield energy transactions from the restrictive measures.

Several nations, including Germany, have continued to resist efforts to broaden the scope of sanctions to Russia's energy sector.

Russia's ruble plan may be a way to ensure that stance holds. Last week, the U.K. announced an asset freeze on Gazprombank as it ramped up Russian sanctions but Britain only gets about 4% of its gas from Russia, compared to about half for Germany.

A possible reason for the ruble request “is Russia wanted to make it clear to Europe than as long as Gazprombank is not sanctioned and payment is made to Gazprom's account in Gazprombank, the gas will flow to Europe,” said Katja Yafimava, senior research fellow at the Oxford Institute for Energy Studies.